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After a few up weeks in a row, the stock indexes finally had a down week. Interest rates are slowly rising again, and so is the US Dollar. Those factors have been big headwinds for stocks this year. The big question is if this is just another pullback to a rising 20-day moving average or the beginning of a new leg lower. The groups that led the market higher in the summer – biotech and software, are already below their 20-day moving average and the indexes are starting to stall near areas of technical resistance.
The good news for the bulls is that there are still plenty of decent-looking long setups and the market continues to react positively to most earnings reports. Even last week when most stocks were under pressure, we saw companies beating earnings estimates like GLBE, WOLF, and BILL breaking out in big volume.
From a short-term psychological perspective, we know that the stock market tends to zig when most people expect it to zag. After a few up days in a row, most are getting FOMO and turning wildly bullish. Then, the market pulls back for a few days and all of a sudden, everyone is getting bearish. This sentiment cycle repeats over and over again in both bull and bear markets and in different time frames. We will see if next week will be any different.
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